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COVID-19 TAX IMPACT

CARES Act and Families First Coronavirus Response
Act

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Below is a summary of the CARES Act and Families First Coronavirus Response Act. Much of the detail is unknown and we will clarify as we learn more from the IRS and SBA over the next several weeks. This is our best effort to summarize the laws, but it is critical not to rely on this information solely.  Please contact us to discuss the specifics of your situation, and how the laws can be best applied to maximize your benefit.
Applicable to all businesses
The IRS has extended the due date of tax payments until July 15th, 2020.  
Net Operating Losses can now be carried back up to 5 years.

Business losses are no longer limited for 2020.  Previously they had been limited to $250k.  This limit will be reinstated after 2020.

The limit on business interest deduction (currently 30% of income) is increased to 50% for 2019 and 2020.  Separate rules apply to Partnerships.

The 10% of taxable income limit for charitable contributions for corporations is increased to 25% for 2020.

Employers can include as a tax-free education benefit up to $5,250 per year.  This is not a new provision.  However, payments of employees’ student loans are now eligible.

SBA Loans-Disaster Recovery Loans
Applicable to Businesses with Employees
Required Employee Pay for Employers with Fewer than 500 employees (Employer Fact Sheet)
Payroll Tax Credit for Required Employee Pay
Credit for Employers Whose Revenues Have Dropped 50% or more OR had their business partially suspended by a governmental authority.
Delayed Payment of Payroll Taxes
SBA Loans-Paycheck Protection Program (PPP)
Self-Employed Individuals (Schedule C)
Refundable Income Tax Credit
Individuals
Extension to file individual returns and pay tax due April 15th has been extended to July 15.

The IRS will send rebates of $1,200 per taxpayer, and $500 for qualifying dependents under age 17 directly.
The 10% penalty for early distribution up to $100k from IRA’s and retirements plans is waived through the end of the year. Additionally you have 3 years to repay your IRA without having to pay income tax on the distribution.

Charitable Deduction Changes
  • $300 of cash contributions are deductible even if you do not itemize.
  • There is no limit for 2020 for the amount of charitable deductions if you itemize.
Non-prescription medical products are eligible for payment through Health Savings Accounts (HSA), Flexible Spending Arrangements (FSA), and Health Reimbursement Arrangements (HRA) and Medical Savings Accounts (MSA).
Frequently Asked Questions

Question: Can I get the disaster loan and the PPP?
Answer: Yes.

Question: Does the PPP loan apply to self-employed business?
Answer: Yes. The SBA will not process loans from self-employed businesses until April 10th. Net earnings from self-employment will be counted as eligible payroll expenses.

Question: Do I have to list all of my companies in the PPP application?
Answer: Yes.

Question: If I cannot front the wages before I pay the mandatory sick leave, is there an exemption for me?
Answer: The Department of Labor has the authority to exempt employers with fewer than 25 employees from portions of the mandatory sick leave, but they have not yet issued regulations on that. You can obtain an advance on the credit by submitting Form 7200 to the IRS.

Question: Can you get the PPP loan if you are paying out emergency sick leave?
Answer: Yes, although the wages you pay for mandatory sick leave are not includible in determining the "payroll expense" for the loan.

Question: Does the average monthly payroll for the PPP loan program include taxes paid by the employer.
Answer: Yes, but only state and local taxes such as unemployment. Federal FICA is not included.

Question: For the PPP loan program do I have to keep all of my employees to be eligible for forgiveness?
Answer: If you reduce your full time equivalents (FTE) during the 8 week period below the applicable reference period, you must reduce the forgiveness amount. For example if you had 8 FTEs during the 8 week period after funding, but had 10 FTEs in the reference period, you will reduce the amount forgivable by 20% (2/10).

If you reduce the average wages of any employee 25% or more, than you will have to reduce the forgivable amount as well.

Question: What compensation is included in calculating "payroll expense"?
Answer: Cash compensation up to $100k per employee, plus employer contributions to retirement plans and group health care coverage. State and Local payroll taxes (e.g. state unemployment taxes) are also included.

Question: Do PPP laons cover paid sick leave?
Answer: Yes. "Payroll expense" includes vacation, parental, family, medical, and sick leave. Except for pay mandated by the Families First Coronavirus Response Act mentioned above.

Question: I use a Professional Employer Organization (PEO), do I still qualify for a PPP Loan?
Answer: Yes. You must provide payroll documentation indicating the amount of wages and payroll taxes reported to the IRS for your employees.

Question: How long until I receive money from a PPP loan?
Answer: Lender must fund the loan within 10 days or receiving SBA approval.

Question: Is the loan forgiveness available under the PPP loan taxable?
Answer: Forgiveness is NOT taxable for federal purposes. However, current IRS guidance states that the payroll and rent expenses will NOT be deductible for tax purposes. You will need to check on taxability with your state.

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